Amazon has given in to publisher Macmillan in a pricing dispute, agreeing to raise its e-book prices 30 to 50 percent on bestsellers. Price increases on standard titles and on works from other publishers are expected to follow in the near future. (Source: Amazon)

Amazon isn't happy but it says it has to play ball with Macmillan Books, adopting up to 50 percent price increases

Amazon, originally an online
bookstore, has thrived off of the ever-expanding retail offerings its
core business unit provides. However, the company has also
enjoyed significant success as an electronics company, producing the
best-selling Kindle
series of e-Book readers (manufactured by Foxconn). The
Kindle series currently owns
over 60 percent of this emerging market.

However, all is
not well for Amazon's e-Books division. Traditionally,
bestsellers have retailed for about $10 in electronic form, with the
early chapters being provided as free samples. Recently,
however, pulled Macmillan from its store over a pricing
dispute.

Amazon wanted to stick with its lower prices.
However, Macmillan wanted up to a 50 percent increase on prices of
its bestsellers. Writes
Macmillan CEO John Sargent, "Under the agency model, we will
sell the digital editions of our books to consumers through our
retailers. Our retailers will act as our agents and will take a 30%
commission (the standard split today for many digital media
businesses). The price will be set the price for each book
individually. Our plan is to price the digital edition of most adult
trade books in a price range from $14.99 to $5.99. At first release,
concurrent with a hardcover, most titles will be priced between
$14.99 and $12.99. E books will almost always appear day on date with
the physical edition. Pricing will be dynamic over time."

He
talked about the decision to pull the books late last month, writing,
"I regret that we have reached this impasse. Amazon has been a
valuable customer for a long time, and it is my great hope that they
will continue to be in the very near future. They have been a great
innovator in our industry, and I suspect they will continue to be for
decades to come."

Now Amazon has given in to the
publisher's demands, but not without doing a lot of complaining
first. Writes the Kindle team in their
forums:

Dear Customers:

Macmillan,
one of the "big six" publishers, has clearly communicated
to us that, regardless of our viewpoint, they are committed to
switching to an agency model and charging $12.99 to $14.99 for e-book
versions of bestsellers and most hardcover releases.

We have
expressed our strong disagreement and the seriousness of our
disagreement by temporarily ceasing the sale of all Macmillan titles.
We want you to know that ultimately, however, we will have to
capitulate and accept Macmillan's terms because Macmillan has a
monopoly over their own titles, and we will want to offer them to you
even at prices we believe are needlessly high for e-books. Amazon
customers will at that point decide for themselves whether they
believe it's reasonable to pay $14.99 for a bestselling e-book. We
don't believe that all of the major publishers will take the same
route as Macmillan. And we know for sure that many independent
presses and self-published authors will see this as an opportunity to
provide attractively priced e-books as an alternative.

Kindle
is a business for Amazon, and it is also a mission. We never expected
it to be easy!

Thank you for being a customer.

Now that Amazon has bowed to Macmillan's wishes, though, it will
be hard pressed to block other publishers from demanding
similar increases. Ultimately, this will likely have a
trickle-down effect, raising e-book prices as a whole around 30 to 50
percent.

That's bad news for this nascent market. While
e-books have significant appeal -- in terms of portability (you can
bring thousands in your book bag) -- there's still many downsides as
well. With electronic books, you're at the mercy of your
current formats and devices -- once they become obsolete, there's the
chance you may lose your book forever. And many people enjoy
the look and feel of an old fashioned book.

Through
competitive pricing, Amazon and other e-book vendors were able to
help customers overlook the downsides and embrace e-books. With
that pricing advantage vanishing, it should be interesting to see if
the industry's growth slows. Amazon's CEO has boldly predicted
(several times) that e-books will soon surpass sales of print books
-- however that is under current pricing. Will e-books that are
30 to 50 percent more expensive be able to take control of the market
in the same way?

"Can anyone tell me what MobileMe is supposed to do?... So why the f*** doesn't it do that?" -- Steve Jobs